Believe it or not, there are some stocks that are actually up in 2022, particularly in the energy sector where rising oil prices have been a catalyst. However, one stock that could end up being an even bigger beneficiary of the 2022 bear market is Berkshire Hathaway (BRK.A -0.28%) (BRK.B -0.68%).
To be sure, Berkshire hasn't been spared in the recent market volatility. While shares are slightly higher for the year, Berkshire is about 13% below its highs. But there are a few good reasons to believe Berkshire will emerge from this downturn a stronger company than ever.
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Berkshire's businesses are designed for good times and bad
First, consider the 60+ subsidiary businesses Berkshire Hathaway owns. There's insurance giant GEICO, BNSF Railroad, the Berkshire Hathaway Energy utility business, Duracell, and Fruit of the Loom, just to name a few. And most have one important characteristic in common: They sell things people need, even in difficult times.
For the most part, Berkshire's operating income should hold up quite well, even if the U.S. falls into a recession. Its businesses will continue to generate billions of dollars each quarter, which can then be redeployed wherever CEO Warren Buffett and his team see opportunities.
Now, it's important to recognize that Berkshire owns a massive stock portfolio, and many of the positions are down considerably from the highs. This is a big reason why Berkshire's stock price has suffered. However, the portfolio is full of resilient businesses and also generates quite a bit of dividend income for the company, and it should continue to do so even in a recession.
In markets like this, cash is king
Buffett is ready to pounce on opportunities. He demonstrated this in the first quarter, when (after years of being a net seller of stocks) he and Berkshire's team put more than $50 billion to work in the stock market. Berkshire scooped up large positions in Occidental Petroleum, HP, Chevron, and more.
Two key points to keep in mind. First, the worst of the downturn in the stock market happened after the end of the first quarter. And second, Berkshire still had $106 billion in cash and equivalents on its balance sheet at the end of the quarter -- far more than the $30 billion Buffett insists on keeping in reserves. Add in the billions of dollars generated by Berkshire's operating businesses, and the Oracle of Omaha still has a massive war chest of buying power. If the first quarter is any indicator, it would be surprising if Buffett and his investment managers didn't put significant capital to work while the market is down.
A big long-term winner
Buffett has a long history of taking advantage of buying opportunities. In fact, some of Berkshire's most successful investments, such as American Express and Bank of America, originated when the stocks had been beaten down. Buffett's extraordinary ability to let cash accumulate and patiently wait to put it to work at the right times has been a big reason why Berkshire has consistently outperformed the market over the years. Buffett has shown that he's ready and willing to deploy capital in 2022, and it could end up driving tremendous value for long-term investors in the stock.
